Question

Yolanda is a cash basis taxpayer with the following transactions during the year: Cash received from sale of products $66,000 Cash paid for expenses (except rent and interest) 40,000 Rent paid on a leased building for 18 months beginning December 1 45,000 Prepaid interest on a bank loan, paid on December 31 for the next 3 months 5,000 Calculate Yolanda's income from her business for this calendar year. If an amount is zero, enter "0". Sales income $ ___66,000______ Expenses: Other than rent and interest $ _40,000_______ Rent $__________ Interest $ ______0_____ Net income $_______

Answer 1

Answer:

$23,500

Explanation:

Net income is arrived at by deducting relevant expenses for the year from the gross income for the year. In this question, sales income is used to represent gross income. The net income can therefore be calculated as follows:

Net Income = Sales income - Expenses other than rent and interest - Rent - Interest

Net Income = $66,000 - $40,000 - [$45,000 × (1/18)] - 0

                    = $66,000 - $40,000 - $2,500 - 0

                    = $23,500

Therefore, net income is Yolanda's net income $23,500.

Note that [$45,000 × (1/18)] is used to calculate rent for only one which is December of the calendar year since the rent was paid for 18 months.